Rs 19/Share Dividend: Midcap IT Stock Is In Sweet Spot To Give Value Returns; 15% Upside Seen

Midcap stock Coforge is among the high dividend paying stocks. For the current fiscal year, the company has already announced a second interim dividend last week. Coforge shares are in a sweeter spot as it reported far better earnings than compared to major tech players such as TCS, Infosys, and HCL Tech on a sequential basis. Coforge shares have a potential of nearly 15% upside ahead.

Coforge Dividends:

In a board meeting held on October 19th, the company's board members declared a second interim dividend of Rs 19 per share having a face value of Rs 10 each for FY24.

The company also fixed November 2, 2023, as the record date for the purpose of ascertaining the eligibility of shareholders for payment of interim Dividends. Coforge shares will also trade ex-dividend on this day.

Earlier, Coforge shares turned ex-dividend in August 2023 for the first interim dividend which was also of Rs 19 per share for FY24.

In FY23, the company paid a whopping 640% dividends amounting to Rs 64 per share.

On the current market price, Coforge's dividend yield is high at 1.3%.

Last week, on Friday, the share price stood at Rs 4999.55 apiece, down by Rs 106.25 or 2.08% on BSE with a market cap of Rs 30,771.32 crore.

Q2 Results:

In the September 2023 quarter, Coforge posted a consolidated PAT of Rs 181 crore, up by 9.5% QoQ. Revenue stood at Rs 2,276.2 crore in the quarter. Notably, Revenue was up Q-o-Q by 2.3% in constant currency, 2.3% in USD and 2.5% in INR terms. Adjusted EBITDA margin at 17.6%, improved by 160 bps Q-o-Q.

The company's order intake came in at $313 million, marking seventh consecutive quarter of $300+ million deal wins. Total order book executable over the next 12 months was at $935 million, up 16.6% Y-o-Y. 8 new clients were added during the quarter.

Interestingly, while major IT companies have recorded a net reduction in headcounts during Q2FY24, Coforge's employee count increased by 414 employees QoQ and 1,647 employees YoY, taking the total headcount to 24,638 people in the quarter. Offshore revenue contribution (IT revenue only) increased to 52%.

Should you buy or sell Coforge shares?

Brokerage Motilal Oswal's note said, "We expect the large deal ramp-ups and healthy funnel to support its growth despite the near-term challenges. These would help the company achieve its FY24 revenue guidance. However, we remain cautious on the 3Q seasonality." It added, "Strong execution, robust client mining, and continued investment in S&M have helped the company gain wallet share and deliver industry-leading growth."

However, Motilal's note also said, "We believe the robust outlook is already factored into the price and we do not see any potential upside from here on. Our TP of INR4,840 implies 26x FY25E EPS. We reiterate our Neutral rating on fair valuations."

On the other hand, Emkay Global recommended holding Coforge shares. In its Q2 review note, Emkay said, "The demand environment continues to remain challenging due to weak discretionary spending and slower decision-making amid macro uncertainties. Despite this, management is confident of delivering sustained and robust growth, backed by large deal signings and maintaining the existing business. Order book executable over the next 12 months stood at USD935mn, up ~17% YoY."

Emkay's note added, "Management has retained its revenue growth guidance of 13-16% CC YoY (implies 1.6-5.0% CQGR in H2) and adjusted EBITDA of ~18% for FY24. We have cut our FY24-26 EPS estimates by 2.5-7.1% to factor in the Q2 miss. We retain HOLD with a revised TP of Rs5,050 (earlier Rs5,260) at 25x its Sep-25E EPS."

Meanwhile, JM Financial has recommended buying Coforge shares and even raised its target price.

JM's note said, "Coforge maintained its FY24 cc revenue growth guidance of 13- 16%, implying 2H CQGR of 2.2-5.7% (JMFe). The company flagged off a potentially tepid 3Q. That would raise the 4Q ask substantially for the upper end of the guidance. We therefore lower our FY24E cc growth to 13.5%. The company also reiterated its margin guidance of maintaining adj. EBITDA margin at FY23 levels (18.3%). Specific tailwinds in 3Q (c.100bps) and a likely growth pick-up in 4Q make this achievable, in our view."

Accordingly, JM's note added, "Seasonal weakness in 3Q will likely drive a tepid next quarter, before growth picks up in 4Q. We build these as we moderate our FY24E cc revenue growth to 13.5% (12.5% USD), at the lower end of 13-16% guidance (unchanged). Our FY24-25E EPS is down by 14%/6%, due to higher ESOP expenses and expectations of a more gradual uptick in margins. Notwithstanding these moderations, Coforge's earning visibility (24% EPS CAGR over FY23-26E) remains one of the highest in the sector, in our view. We therefore shed our conservative stance that mid-caps should necessarily trade at a discount to their larger peers. We raise our target multiple for Coforge to 24x forward EPS (from 22x) - in-line with its current FY25 multiples and at a 20% premium to INFO. Maintain BUY with a revised TP of INR 5,730 (from INR 5,300)."

From JM's target price and current market price, Coforge has a potential of nearly 15% ahead.

Disclaimer:

The recommendations made above are by market analysts and are not advised by either the author nor Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.